CGS-CIMB Research is trimming Public Bank Bhd’s net earnings forecast for FY2022 after factoring in “cukai makmur” a.k.a prosperity tax and a 25 basis points hike in Bank Negara Malaysia’s overnight policy rate (OPR) assumption in mid-2022.
To recap, “cukai makmur” is a one-off special tax proposed by the Government in Budget 2022 whereby a higher tax rate of 33% (vs the current statutory tax rate of 24%) will be imposed on companies’ FY2022F pre-tax profit in excess of RM100 mil.
“Consequently, our projected FY2022F net profit for Public Bank is reduced by 10.1% (due to “cukai makmur”) but our FY2023F net profit forecast is raised by 1.5% (on OPR hike assumption),” opined analyst Winson Ng in a company update.
“Our projected FY2022F dividend per share (DPS) is also reduced by the same magnitude of 10.1% (as the cut in net profit) to 14 sen (dividend yield of 3.5%).”
CGS-CIMB Research further noted that since the outset of the COVID-19 outbreak in early-2020, Public Bank’s net profit has been hit by various measures related to re-payment assistance provided by the bank to its borrowers.
These include waiver of the interest on fixed-rate loans from April 1 to Sept 30, 2020 which led to a modification loss of RM494.8 mil and a three-month interest exemption for B50 borrowers in 4Q 2021 and 1H 2022 (estimated negative impact of RM115.7 mil).
“PBB’s earnings will also be negatively affected by ‘cukai makmur’. To reflect the risks from any additional measures that could lower its earnings, we impute a 10% discount to our dividend discount model (DDM) value for the stock,” justified the research house.
“This leads to a drop in our DDM-based target price from RM4.80 to RM4.60 despite rolling over our target price to end-2022.”
Following its earnings adjustments, CGS-CIMB Research is projecting a 1.4% drop in Public Bank’s FY2022F net profit – mainly dragged down by “cukai makmur” – compared to its previous forecast of 9.6% growth (before earnings adjustments).
“However, our projected net profit growth in FY2023F increases from 9.4% previously to 23.5% due to the lower base in FY2022F following the earnings cut,” the research house pointed out.
Despite the setback, CGS-CIMB Research reiterated its “add” rating on Public Bank given the bank is deemed “most defensive against credit risks from the COVID-19 pandemic”.
“This is supported by its asset quality – the strongest in the sector – with the lowest gross impaired loan (GIL) ratio of only 0.35% and the highest loan loss coverage of 275.1% at end-June,” justified the research house.
“A potential re-rating catalyst is a smaller increase in its GIL relative to its peers in the event of an industry-wide deterioration in asset quality in 2022F.”
At the close of today’s mid-day trading, Public Bank was down 3 sen or 0.74% to RM4.01 with 5.84 million shares traded, thus valuing the company at RM77.84 bil. – Nov 5, 2021
